Correlation Between Big 5 and Hibbett Sports

Can any of the company-specific risk be diversified away by investing in both Big 5 and Hibbett Sports at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Big 5 and Hibbett Sports into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Big 5 Sporting and Hibbett Sports, you can compare the effects of market volatilities on Big 5 and Hibbett Sports and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Big 5 with a short position of Hibbett Sports. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big 5 and Hibbett Sports.

Diversification Opportunities for Big 5 and Hibbett Sports

-0.64

Correlation Coefficient

Big 5  Hibbett Sports

Excellent diversification

The 3 months correlation between Big and Hibbett is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and Hibbett Sports in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hibbett Sports and Big 5 is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Big 5 Sporting are associated (or correlated) with Hibbett Sports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hibbett Sports has no effect on the direction of Big 5 i.e., Big 5 and Hibbett Sports go up and down completely randomly.

Pair Corralation between Big 5 and Hibbett Sports

Given the investment horizon of 90 days Big 5 Sporting is expected to generate 3.68 times more return on investment than Hibbett Sports. However, Big 5 is 3.68 times more volatile than Hibbett Sports. It trades about 0.23 of its potential returns per unit of risk. Hibbett Sports is currently generating about -0.23 per unit of risk. If you would invest  327.00  in Big 5 Sporting on March 18, 2024 and sell it today you would earn a total of  579.00  from holding Big 5 Sporting or generate 177.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Big 5 Sporting  vs.  Hibbett Sports

Big 5 Sporting

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Big 5 Sporting are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Big 5 showed solid returns over the last few months and may actually be approaching a breakup point.

Hibbett Sports

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hibbett Sports has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Big 5 and Hibbett Sports

The main advantage of trading using opposite Big 5 and Hibbett Sports positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big 5 position performs unexpectedly, Hibbett Sports can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Hibbett Sports will offset losses from the drop in Hibbett Sports' long position.

The idea behind Big 5 Sporting and Hibbett Sports pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.